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If you’re a retirement saver, you know just how difficult this year has been for those Americans trying to grow their nest eggs.
For one thing, relentless inflation has forced a lot of folks to suspend retirement plan contributions in favor of affording consumer essentials such as food and gas.[1]
Additionally, as efforts to combat inflation with higher interest rates have raised the prospects of recession and further upset the economy, the resulting volatility has reduced the value of America’s retirement plans by trillions of dollars. Alicia Munnell of Boston College’s Center for Retirement Research informs us that through just the first half of 2022, IRAs and 401(k)s saw their collective value drop by a stunning $3.4 trillion.[2]
To some, these developments alone may appear to be the basis of a retirement crisis. But they really are just a small part of a much larger retirement crisis that’s been brewing for decades.
The retirement crisis I’m referring to centers on the difference between what America’s retirees need to live once they cease work altogether and how much they actually have saved. As it turns out, that number is big. The Center for Retirement Research’s Alicia Munnell says it now is more than $7 trillion.[3]
“Approximately half of Americans are at risk of not being able to maintain their pre-retirement standard of living after they stop working,” said Angie Chen, a research economist at the Center for Retirement Research.[4]
When you consider just how little retirement-bound Americans have managed to save up to this point, you wonder if even that outlook is a little too hopeful. According to recent data, U.S. citizens between the ages of 55 and 64 have accumulated a median savings amount of only $134,000.[5]
Demographics tell us the problem is poised to only get worse. Just two years ago, Americans aged 65 and older represented 17% of the population. By 2030, the percentage will be 21%.[6]
The looming depletion of Social Security is another related complication. You surely have heard that Social Security is on the fast track to insolvency. As it stands right now, Social Security’s Old-Age and Survivor’s Insurance Trust Fund is expected to be fully depleted in just 12 years. Unless drastic measures are taken to capitalize the program, scheduled benefits will have to be reduced by roughly 20% after that point.[7]
Remember, though, that the retirement crisis has been in play even as Social Security has remained (relatively) financially healthy. So, even if steps are taken to improve the future viability of Social Security, it likely isn’t ever going to serve as a bona fide solution to the retirement crisis. The best we can hope for is that the program remains operational enough so that the retirement crisis doesn’t morph into a retirement catastrophe.
How can the retirement crisis be solved, then?
The scope of the problem is such that there isn’t going to be one solution, in my opinion. I believe effectively addressing it will require embracing a comprehensive array of solutions implemented at a number of different levels, to include at the level of public policy.
That said, part of the answer – in my opinion – will involve assisting individual retirement savers to understand what more they can do to help grow their nest eggs. Part of that effort may include encouraging savers to consider the potential benefits offered by self-directed IRAs.
Are you familiar with self-directed IRAs? They’re a slightly less conventional type of IRA that provides account owners with the opportunity to own alternative assets such as physical gold and silver. As it happens, these kinds of assets typically are unavailable for purchase in company 401(k)s and the IRAs normally opened at banks and other mainstream financial institutions.
How might self-directed IRAs improve the outlook for retirement savers? By giving those savers an opportunity to further maximize their total financial holdings using assets and strategies that aren’t available in the tax-advantaged accounts they likely own already.
If self-directed IRAs potentially can do that, then I’d say they’re worthy of a closer look.
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What Is a Self-Directed IRA?
I want to make something clear before we go any further: In terms of the “basics,” self-directed IRAs are, in fact, just like the IRAs you open at a bank or brokerage. That is, the same IRS rules and guidelines that apply to the IRAs you likely are most familiar with also apply to self-directed IRAs; the annual contribution limits are the same, the distribution rules are the same, the tax-advantaged features are the same, etc. In fact, when you set up a self-directed IRA, you have to choose from the same available IRA account “types” that you do when you open a more typical IRA: traditional, Roth, SIMPLE or SEP.
So, then, what’s different about self-directed IRAs? What is it that makes them – as I said earlier – “less conventional” IRAs?
If you want to be technical about it, there are two differences between self-directed IRAs and the IRAs with which you are most familiar. The first and most obvious difference has to do with the kinds of assets that can be purchased in self-directed IRAs. Unlike company 401(k)s and more common IRAs, self-directed IRAs permit account owners to purchase so-called alternative assets. Earlier, I identified physical precious metals as examples of such assets. Savvy savers sometimes find these kinds of assets appealing because of the potential benefits they offer to hedge and effectively diversify retirement accounts in the face of a multitude of risks.
The other distinguishing feature of self-directed IRAs has to do with the type of custodian that’s used to carry out the administrative and recordkeeping duties associated with the account. All IRAs must have custodians to ensure that accounts remain compliant with applicable IRS rules and regulations. However, performing required custodial tasks on behalf of alternative assets can involve more complex work than that which is required to keep other IRAs in good standing. That more specialized work is handled by the self-directed IRA custodian.
One especially popular reason for retirement savers to open a self-directed IRA is so they can own physical gold and silver on a tax-advantaged basis. Precious metals have enjoyed a reputation as safe-haven assets for millennia. Because of this, they’re sought-after options by some who are particularly interested in mitigating the impact of economic uncertainty on their retirement savings.
Self-directed IRAs specifically opened for the purpose of buying metals are commonly referred to as “gold IRAs.” Purchasing gold and silver inside of an IRA affords the account owner the opportunity to further maximize the potential benefits of metals by keeping them underneath a tax-advantaged “umbrella.”
But just what are the potential benefits of owning metals? And are those benefits really significant enough to make a truly worthwhile impact on one’s financial future?
Let’s find out.
Precious Metals Have Thrived as Both “Crisis” Assets and “Core” Assets This Millennium
Precious metals tend to be thought of primarily as safe-haven assets – resources that can help mitigate the impact of economic distress on retirement savings. Given this, perhaps it’s worth a look at how metals fared during what undoubtedly are the two biggest periods of global economic turmoil this century: the financial crisis and the height of the worldwide pandemic lockdowns.
Most know that 2008 is the year the financial crisis unfolded in earnest. However, the significant events that characterized the debacle began in 2007 and continued for years afterward. For much of that time, both gold and silver posted admirable performance numbers.
December 2007 marked the beginning of the U.S. recession triggered directly by the crisis.[8] If we look at how metals fared from that point through the subsequent four years – as global economic volatility arising from the crisis continued to play out – we find that gold and silver appreciated 115% and 120%, respectively.[9]
The other globally significant instance of economic turmoil this millennium has been the COVID-19 pandemic. I say “has been” because the pandemic remains ongoing, but we all are well aware that it was 2020 when the world’s citizens experienced lockdowns on an unprecedented scale. The strain on the global economy was nearly unprecedented, as well, with the International Monetary Fund declaring the resulting fallout to be representative of the “worst economic downturn since the Great Depression.”[10] There certainly was no argument from the U.S. on that point, as America wrestled in 2020 with the highest unemployment rate since the Depression.
However, as uncertainty and even turmoil upset the worldwide economic order during that year, gold and silver strengthened. Gold finished calendar year 2020 up roughly 27% while silver rose a little more than 50%.[11]
It likely is reassuring to retirement savers to see evidence of metals thriving during particularly severe instances of global economic turbulence. And the safe-haven reputation of metals surely is a principal reason savers consider precious metals assets in the first place. But what about the performance of metals over greatly extended periods of time?
As it turns out, the performance of gold throughout this entire millennium has been quite respectable, to say the least. From January 2001 through the present day, the price of gold has appreciated slightly more than 500%.[12]
Metals have been criticized for perceived underperformance over long-term time frames. And as far as the current run is concerned, there’s no guarantee gold will continue to keep up the same pace it has set over the last 21 years. As a matter of fact, despite metals’ reputation as “go-to” assets in times of trouble, there are no assurances that gold or silver will surge amid the next global economic crisis. All of that said, however, it’s not unreasonable to consider at the potential of such alternative assets to add acute value to one’s savings regime.
In an era plagued by an ever-worsening retirement crisis, it just might be the case that having the ability to access precious metals inside of a tax-advantaged account – a gold IRA – could prove helpful to some in ensuring their financial viability once they’re no longer working.
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My View: Americans Must Save More and Better to Ensure Personal Financial Viability
To be clear, I am not suggesting that gold IRAs or self-directed IRAs, in general, are a universal solution to the retirement crisis. However, the magnitude of the retirement crisis means a solution likely will come in the form of multiple “component” solutions, among which could be account mechanisms designed to help maximize a retirement saver’s personal financial resources. For some retirement savers, self-directed/gold IRAs could be one of those mechanisms.
If the nation ever gets serious about solving the retirement crisis, answers certainly will be required on a national level, as well. For example, big adjustments may have to be made even in the way the citizenry views Social Security in order for Americans to be better motivated to save on their own behalf. Presently, of those older Americans who receive Social Security benefits, 37% of men and 42% of women derive 50% or more of their income from the program.[13]
However, the bottom line is that for those percentages to go down, individuals will have to both save more and save better on a personal level. As far as saving better goes, one possible way to accomplish that could be through access to alternative assets and accounts that may help one make the most of his or her accumulated savings.
As I said, on their own, self-directed IRAs and gold IRAs will not solve the retirement crisis. But if they afford some savers the opportunity to further optimize their nest eggs and – as a result – put their own personal retirement futures on more solid ground, then I would suggest they at least could serve as part of the solution.
[1] Jacqueline Sergeant, Financial Advisor, “Americans Slashing Retirement Savings As Prices Soar, Survey Says” (June 2, 2022, accessed 9/26/22).
[2] Alicia H. Munnell, MarketWatch.com, “The stock market decline is undercutting retirement saving” (June 21, 2022, accessed 9/26/22).
[3] Suzanne Woolley, Bloomberg.com, “America’s $7 Trillion Retirement Crisis Is Only Getting Worse” (August 16, 2022, accessed 9/26/22).
[4] Andrew Osterland, CNBC.com, “Are you saving enough for retirement? Odds are, probably not” (April 11, 2022, accessed 9/26/22).
[5] Ibid.
[6] United States Census Bureau, “2017 National Population Projections Tables: Main Series” (accessed 9/26/22).
[7] Social Security Administration, “A Summary of the 2022 Annual Reports” (accessed 9/26/22).
[8] National Bureau of Economic Research, “US Business Cycle Expansions and Contractions” (accessed 9/26/22).
[9] London Bullion Market Association, “LBMA Precious Metal Prices” (accessed 9/26/22).
[10] Gita Gopinath, IMFBlog, “The Great Lockdown: Worst Economic Downturn Since the Great Depression” (April, 14, 2020, accessed 9/26/22).
[11] London Bullion Market Association, “LBMA Precious Metal Prices.”
[12] Ibid.
[13] Social Security Administration, “Fact Sheet” (accessed 9/26/22).
Devlyn is director of education, the on-staff economic analyst at Augusta Precious Metals, and a member of the Harvard Business School's business analytics program. Over three decades, he has processed more than $2 billion in financial assets and now uses his experience to guide American retirement savers to diversify, hedge against inflation, and protect their retirement savings through gold IRAs.
